How do a Debt Arrangement Scheme (DAS) work?
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What is a Debt Arrangement Scheme?
A Debt Arrangement Scheme (DAS) is a financial solution designed to give individuals in Scotland legal protection from their creditors as they aim to repay any unsecured debts they owe in full. It is not a form of insolvency and is not designed for situations in which an individual is fundamentally unable to settle their outstanding debts. If you are considering a Debt Arrangement Scheme (DAS) you can speak to one of our debt experts at Scotland Debt Solutions
If you live in Scotland and you’re finding it difficult to fend off creditors and to manage your finances more generally then a DAS could be an appropriate solution to your problems but it’s important to get advice on how best to proceed from relevant experts in the field.
How does a DAS help?
As its name suggests, a Debt Arrangement Scheme is based around the creation of a plan designed to see an individual find a way of paying off their debts over a specified period of time. By entering into a DAS, a debtor is able to gain a useful degree of clarity over when and how much money they will have to pay to their creditors.
The arrangement aspect of a DAS is important because it reflects the idea that an individual’s creditors are on-board with and satisfied with a repayment plan as established by the relevant scheme. It isn’t always easy to reach an agreement with your creditors over the precise terms of your repayment plan in the context of DAS. However, your creditors might be more open to negotiations than you’d expect because the creation of a DAS provides them with potentially a greater degree of assurance with regard to your debts being repaid than they would otherwise have.
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How does a DAS work?
Fundamental to the DAS process is the establishment of a repayment agreement between an individual debtor and his or her creditors. Making sure such an agreement can be reached is vital, so an Approved Advisor needs to be appointed to address the intricacies of a given situation and find the kind of compromise that stands the best chance of satisfying all relevant stakeholders.
Unlike with Sequestration and Trust Deeds, establishing the terms of a DAS does not involve discussions around what portions of a person’s debts are to be written off in the interest of seeing a sustainable repayment plan created. It is for this reason that a DAS is not deemed to be a form of insolvency but is rather a means of making a person’s debt problems more manageable and providing a route out of an unsecured debt situation that is in danger of getting out of control.
Creating a Debt Payment Plan
When an advisor is appointed to assist you in the context of a DAS process it is generally their responsibility to draw up a Debt Payment Plan, which is designed to detail exactly how and when a debtor will pay back money they owe to creditors. This aspect of the process usually requires cooperation and a degree of compromise from all the different parties involved.
Typically, the aim in crafting a Debt Payment Plan is to consolidate a variety of unsecured debts in a way that leaves them more manageable and more easily settled by the debtor. The scale of the debts involved are not reduced or written off but consolidation can make a big difference in terms of how effectively an individual is able to tackle their debts and move towards a more sustainable financial future.
What else do I need to know about a DAS?
If you live in Scotland and you’re struggling to get a grip on your financial situation then it could be that a DAS will help in that process. However, if your unsecured debt problems are such that you are not realistically in a position to pay them back, even with the help of a DAS, then you are effectively insolvent and you will need to find a different way of dealing with your problems.
It’s very important to enter into any insolvency or debt management arrangement with a full understanding of what it means for you and your financial future. You can speak to an expert on these issues directly by calling any of the Real Business Rescue offices in Aberdeen, Dundee, Edinburgh or Glasgow.
For the most part, Debt Arrangement Schemes are designed to provide clarity and a sustainable repayment framework for people who are indebted but have the means to pay back all the money they owe over a long enough period of time. So this means that the DAS option generally works best as a debt solution for people who are in employment and who will be left with some expendable cash in their bank accounts after their monthly repayments have been made. Unfortunately, if your income is unreliable then it will be difficult for a variety of reasons to establish the terms of a DAS and set out a sustainable plan for debt repayments.
How long will a DAS last?
The Debt Repayment Plan that underpins any DAS incorporates details of a timeframe as agreed upon by all the stakeholders involved, which will mean the debtor and his or her creditors, however many there may be.
A key consideration as this plan is put together will always be affordability and how much money an individual can realistically afford to pay back on a monthly basis. From there, an advisor will be able to estimate and then finalise a timeframe for repayment that works for all the parties involved.
Clearly, creditors will want to see their debts paid back as soon as possible, so establishing what is or isn’t ‘possible’ can be a source of disagreement or contention. It is the job of your accredited advisor to help find a compromise on these issues and to ensure that an agreement can eventually be reached. There are no standard timeframes and each case is addressed individually based on a full range of considerations, including affordability from the perspective of the debtor and, of course, the amounts of money involved.
An essential aim of a DAS is to succeed in simplifying an indebted individual’s finances. To that end, a Debt Payment Plan is based around the idea of having the debtor pay a single sum of money each month over the course of a designated period of time. This sum will need to be paid by standing order but can be arranged via any ordinary payment card or through an employer.
By paying just a single sum and knowing that a range of unsecured debts are being addressed and chipped away at can provide a DAS entrant with some very worthwhile and valuable peace of mind as they look to improve their financial position. The money being paid is passed on to a debtor’s creditors by a designated Payments Distributor. Crucially, if the terms of a DAS are adhered to as agreed then creditors cannot add any charges or fees to the amounts owed.
Real Business Rescue has the authority to act as a Payments Distributor in the context of a DAS agreement. If you would like to find out more about how the process works and how it might help you then call one of our experts for a confidential chat or to arrange a consultation.
It is far better for an indebted individual to stick to the terms agreed via a DAS and to ensure that the scheme can run its course in full. By doing so, unsecured debt problems can become a thing of the past and a much healthier financial position can steadily be pursued. However, if a debtor does become unable to keep up their monthly payments then they are obliged to inform their advisor and set out the terms of a payment break as early as possible.
If, for example, a person entering a DAS loses their job or is unable to make payments for some other legitimate reason then they will be advised of the options available. There is scope for the deal to hold and for the DAS to remain in effect but generally only for a few or up to six months.
Failing to pay
Where there are genuine reasons why your disposable income levels drop to an extent that makes it very difficult or impossible for you to pay pack money as agreed under the terms of a DAS then the parties involved can redefine those terms. In order to rearrange your DAS it is imperative that you speak to your advisor and find out what kind of allowances can be made.
If you don’t communicate any reasons to your advisor or your creditors but you fail to make payments that are due then there is a good chance your DAS will be effectively terminated within a few months. From that position it is likely that your creditors will pursue you for full payment and start adding extra interest fees and charges to any outstanding amounts. Plus, you may also find that creditors add fees and interest charges retrospectively.
Advantages of a DAS
A Debt Arrangement Scheme affords what can be very important respite from creditors if you’re in the position of seeing your unsecured debts mounting up. It is a chance to arrest a slide into serious debt problems before they become completely unsustainable and result in the need to enter some form of insolvency.
A DAS provides individuals in Scotland with protection against their creditors in the sense that they ensure no new fees or interest charges are added to the amounts of money that a debtor owes. For that reason alone, a DAS is great option for thousands of people around Scotland every year who are aiming to put their debt problems behind them.
Another advantage of entering a DAS is that a debtor can give themselves a clearer sense of how bad their financial problems really are and the schemes themselves simplify the way debts can be repaid.
Plus, the act of entering a DAS involves reaching out for third party help with financial problems, which for many people can be an important step towards understanding and resolving debt management problems.
Ultimately, the primary advantage of a DAS is that is gives people with debt problems more time to tackle them and a clearer sense of how long it will take them to become debt free.
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Disadvantages of a DAS
Entering any officially or legally supported form of debt management solution can have a negative impact on an individual’s credit score and a DAS is no exception. Although a DAS does not amount to insolvency or mean that any debts are being written off, they do involve debts being repaid over a longer period of time than initially agreed, which creditors do not like to see.
Another aspect of the DAS process that might put some people off is that an individual entering a repayment scheme will struggle to borrow any money or access credit during the life of the agreement. This isn’t a hard and fast rule but credit can only generally be accessed by people with a DAS in place with the express consent of their scheme administrator.
A DAS is designed to give Scottish consumers a chance to resolve their unsecured debts on the basis of consistent commitment to a repayment plan. Therefore, using a DAS as a way of becoming debt free takes time and probably won’t work for anyone aiming to pay off their debts in a short period of time.
How your assets could be affected
As a debt solution that stops short of being a declaration of insolvency, a DAS has the considerable appeal of offering a route out of debt problems without the need to involve a person’s assets in the process. Trust Deeds and Sequestration can require debtors to sell or otherwise utilise any assets they own in order to raise funds to settle debts but that is not the case with a DAS.
As such, a DAS offers an opportunity for people who are struggling with debts to turn their finances around before they reach the point of being totally unsustainable and before the reality of insolvency becomes unavoidable.
Advice and support
There a number of different ways for people with debt difficulties in Scotland to go about trying to resolve their issues. It is very important to understand the options available and the consequences in each case before making choices that can have long-lasting effects.
If you feel you might benefit from expert advice in relation to Debt Arrangement Schemes, Sequestration or Trust Deeds then you should call Real Business Rescue today. We offer confidential guidance and support to hundreds of people around Scotland and we can answer any questions you might have.